US Supreme Court ends controversy over application of FICA tax to severance payments with unanimous decision for the government

Tax Controversy & Dispute Resolution ()
In a unanimous decision, the US Supreme Court on March 25 brought an abrupt end to thousands of existing Federal Insurance Contributions Act tax refund claims potentially worth billions of dollars. As far back as 2002, employers had sought refunds of FICA taxes paid on severance payments made to employees terminated as part of down-sizing.

The Court’s 8-0 decision in US v. Quality Stores ends the debate as to whether broad classes of termination payments are excluded from FICA taxes. The administrative process has terminated for all previously denied refund claims. Further, since a legal basis supporting those claims no longer exists, the IRS will deny all pending claims.